Igor Cherkaskyi: International audit of the national AML/CFT system is completed.
The activity of the State Financial Monitoring Service of Ukraine is recognized effective and successful.

On January 30, 2018, the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL) published the 5th round Mutual Evaluation Report of Ukraine (https://rm.coe.int/fifth-round-mutual-evaluation-report-on-ukraine/1680782396).

On the whole, the Report confirms that Ukraine is a reliable jurisdiction in AML/CFT issues, which does not require special control measures (beacons) from MONEYVAL and FATF.

The indicated result testifies to unconditional progress in the development of the national financial monitoring system and confirms the growing effectiveness of actions of all its participants.

In the light of this event, it should be emphasized that, based on the results of the audit, MONEYVAL confirmed the significant level of operational and institutional capacity of the national financial intelligence unit - the State Financial Monitoring Service of Ukraine for all rating parameters.

In addition, the Report focuses on the significant level of inter-agency coordination, the quality of the first National Risk Assessment, the organization of international cooperation, as well as high level of regulatory and supervisory activities, in particular over the banking sector and the securities market.

The Report also pays tribute to the concentrated work that is currently underway to arrest and confiscate funds in cases of corruption and theft of state assets at higher levels in accordance with national ML risks.

It should be emphasized that under the monitoring regime Ukraine is at the level of such FATF member countries as Australia, USA, Canada, Singapore, Denmark, Sweden and Switzerland.

Based on the results of the evaluation of Ukraine, the positive MONEYVAL’s decision was preceded by a number of unprecedented complex organizational and practical measures that were carried out and accompanied by the SFMS throughout the whole 5th round evaluation process, which lasted more than a year and was launched in August 2016.

In this context, it should be noted that the significant efforts of the SFMS were focused on the completeness of the information and analytical support of international experts, as well as on the coordination of joint actions with the state authorities of Ukraine in this area, in particular with the Prosecutor General’s Office of Ukraine, the National Anti-Corruption Bureau of Ukraine, the Security Service of Ukraine, the State Fiscal Service of Ukraine, the National Police of Ukraine, the National Bank of Ukraine and other authorities.

Also, the evaluation process took place with the considerable support of the Cabinet of Ministers of Ukraine and the Ministry of Finance of Ukraine.

The SFMS was the main moderator of the abovementioned work at all stages of preparation and conducting of the international evaluation of Ukraine, in particular:

- Stage I (September-December 2016) – the detailed Questionnaires on Technical Compliance of Ukrainian legislative framework with FATF standards as well as on Effectiveness of functioning of financial system (including examples, statistics and other professional information) were filled in, translated and sent to MONEYVAL;

- Stage II (January-March 2017) – the SFMS conducted practical, methodological and explanatory meetings, meetings and trainings for participants of the financial monitoring system. About 40 of such interagency thematic events were organized and conducted;

- Stage III (March 23 - April 8, 2017) - The SFMS has organized a stay of MONEYVAL evaluation team in Kyiv, which has held more than 70 expert meetings with relevant representatives of Ukrainian authorities;

- Stage IV (April-September 2017) - The SFMS has ensured cooperation with MONEYVAL Secretariat, which included the conference calls, consultations on elaboration of the draft Report;

- Stage V (October-December 2017) - SFMS has ensured the participation of Ukrainian delegation in the face-to-face meetings with the evaluation team in Strasbourg, French Republic (2-4 October 2017) and further elaboration of the draft Report;

- Stage VI (December 4-7, 2017) – the SFMS has ensured the organization of the participation of the Ukrainian delegation in the meeting of the Working group of experts and the 55th Plenary meeting of MONEYVAL (Strasbourg, French Republic), which approved the 5th round Mutual Evaluation Report of Ukraine;

- Stage VII (December 8, 2017 – January 30, 2018) - the SFMS took part in carrying out detailed analysis of the approved Report concerning quality and consistency in accordance with the approved MONEYVAL’s procedures with regard to Ukraine.

As a result of the coordinated and constructive work of the SFMS with MONEYVAL, the final Report broadly and objectively highlights the state of technical compliance and effectiveness of AML/CFT measures in Ukraine.

This international document provides an analysis of the level of compliance of Ukrainian legislation with the relevant FATF Recommendations, an assessment of practical operability and effectiveness of the financial monitoring system in Ukraine, and provides recommendations for its improvement.

In particular, the Report includes a comprehensive rating assessment of the situation in Ukraine on prevention and counteraction to money laundering, terrorism financing and financing of proliferation of weapons of mass destruction and covers the following issues:

- National Risk Assessment and International Cooperation;

- regulation, supervision, evaluation of the private sector and risks of legal entities;

- collection, analysis and sharing financial information;

- investigation and prosecution of money laundering and terrorism financing;

- the use of confiscation and targeted financial sanctions for financing of terrorism and proliferation of weapons of mass destruction.

As a result, Ukraine has received positive ratings based on the results of a technical compliance assessment of Ukrainian legislation. In particular, it has been established that national legislation is fully compliant with 12 FATF Recommendations, largely compliant with 20 FATF Recommendations, partially compliant with 7 FATF Recommendations and one Recommendation is not applicable in Ukraine.

Under the level of efficiency, according to the established ratings, Ukraine was rated by the two immediate outcomes as "substantial", by eight immediate outcomes as "moderate" and by one immediate outcom as “low”.

The MONEYVAL’s Report has also identified a number of constructive comments to the work of the National financial monitoring system. These comments primarily concern the necessity of increasing efficiency of:

- the law-enforcement and judicial system, in particular, in terms of improving practical measures for investigating criminal proceedings, seizure and confiscation of criminal proceeds;

- measures for regulating and supervising of non-financial institutions and businesses;

- introduction of a procedure for verifying the reliability of the data of the ultimate beneficial owners;

- measures for preventing and counteracting to terrorism financing and awareness in private and non-profit sectors with appropriate threats, vulnerabilities and risks associated with their professional activities;

- measures to introduce comprehensive, reliable and continuous administrative reporting in the field of financial monitoring;

- harmonization of the national legislation with regard to crimes related to terrorism financing and targeted financial sanctions in line with international standards, etc.

It should be noted, that indicated MONEYVAL’s proposals for Ukraine fully comply with outcomes of the National Risks Assessment held by the SFMS in 2016, in particular with regard to risks of corruption, organized crime, high cash flow, terrorism manifestation, lack of sector assessment of financial sector risks, ineffective sanction policy, work of law-enforcement and judicial system.

Today, the SFMS has started the process of preparation of the relevant Action Plan for further improvement of the financial monitoring system in Ukraine by the results of the 5th round of MONEYVAL’s evaluation. The specified work is defined by the SFMS as priority and urgent.

The SFMS, taking into account the results of the 5th round of evaluation, will actively continue to take effective measures in the context of further development of internal cooperation and cooperation with MONEYVAL as well as international community in order to minimize the negative manifestations of global and national risks and taking into account the need for continuous and uninterrupted functioning of the mechanism for prevention and counteraction to the threats of money laundering, terrorism financing and financing of proliferation of weapons of mass destruction.

Reference: It is worth topay attention to the positive MONEYVAL’s conclusions in thecontext of evaluation of the SFMS’s work effectiveness as a national financial intelligence unit.

Immediate Outcome of the efficiency

Extract from MONEYVAL’s Report

Immediate Outcome 1 (Risk, Policy and Coordination) :

«The Financial Intelligence Unit (FIU) has a high level of focus on ML and in addressing risk. It has introduced an automated system for the prioritisation of its analysis of STRs and successfully developed complex ML cases which address Ukraine’s risks.

Ukraine has comprehensive national coordination and policy making mechanisms in the area of prevention and counteraction to ML, which include political commitment. These mechanisms also apply to counteraction to FT and financing of proliferation of weapon of mass destruction following amendments to the AML/CFT Law in February 2015. At the operational level, the FIU coordinates the development and implementation of these policies and activities in relation to them; it was also the coordinator of the NRA and the preparation of the NRA report.

Cooperation at the operational level and the information exchange between the authorities in general is positive, especially where the FIU is involved.

National policies and activities are coordinated well by the FIU, and also by the MoF in relation to the execution of legislation. Both authorities are proactive».

Immediate Outcome 2 (International cooperation):

«The FIU is a member of the Egmont Group and adheres strictly to the Group’s Principles for the Information Exchange».

Immediate Outcome 3 (Supervision ):

«The FIU devotes significant and positive energy to operating the training centre for use by all RE and state financial monitoring entities sectors of Ukraine.

The FIU actively prepares and posts publications on its website and promotes use of the training centre by real estate agents».

Immediate Outcome 4 (Preventive Measures):

«The FIU and the supervisors undertake frequent outreach sessions to the private sector which includes updates in legislation and current AML/CFT issues. The evaluation team understood from interviews with the private sector that the outreach by the FIU in particular is very useful. The relationship with the FIU and the supervisors was generally described by those interviewed as constructive».

Immediate Outcome 5 (Legal Persons and Arrangements) :

«Ukraine has made a number of positive legislative changes to promote the transparency of legal persons and make them less attractive instruments to obscure the proceeds of crime or to finance terrorism.

The identities of the controllers, directors and BOs are recorded on the USR which can be accessed by any authority or member of the public. Furthermore, training by the supervisory authorities and the FIU has highlighted this resource to the private sector who explained to the evaluation team that they routinely use it as part of their due diligence process, in particular to verify the BO of any legal persons they enter into a business relationship with».

Immediate Outcome 6 (Financial intelligence ML/TF) :

«The FIU produces good quality financial intelligence and strategic analysis based on a broad range of sources, including the very high number reports filed by REs. As illustrated by numerous case examples provided by the authorities, a significant percentage of case referrals from the FIU to LEAs generates investigations into ML, associated predicate offences or FT by LEAs.

The information of the FIU is also crucial for the seizure of criminal assets through the use of its authority to stop suspicious financial transactions.

The assessment team was informed by all LEAs as well as the main supervisory bodies met on-site that the FIU is clearly the main partner authority of reference when any type of financial analysis is needed either to start or continue an investigation.

The FIU has managed to remain effective by prioritising cases in line with the risks identified in the NRA, as well as its own risk analysis: cases including PEPs, fictitious domestic companies (in relation to grand scale organised crime), offshore companies (in relation to corruption) and FT have been given priority attention.

The FIU has dealt with a significant and increasing number of cases in the period under review: responses to LEAs’ requests for information; cases already investigated by LEAs and input into the unified pre-trial investigation register; or cases disseminated to LEAs in accordance with their investigation competencies».

Immediate Outcome 7 (ML investigation and prosecution):

«The UAs indicated that the detection of ML offences is achieved through: reports from the FIU; law enforcement authorities initiating such investigations in carrying out operational-search activities; during investigations of other criminal proceedings; receiving requests for MLA.

In 2014, complex and sensitive pre-trial investigations involving corruption, misappropriation, embezzlement of state property, and abuse of power (with ML as an ancillary offence in 4 cases) were opened by the PGOU and conducted by that office, together with the FIU, in respect of former high officials from the previous regime».

Immediate Outcome 8 (Confiscation):

«Ongoing work on seizure and confiscation of assets involving high-level corruption and the plundering of state property, taking into account the ML risks outlined in the NOR, is positively evaluated».

Immediate Outcome 9 (TF investigation and prosecution):

«The FIU, on a daily basis, analyses reports on financial transactions related to suspicions in FT, received from REs, as well as received in the form of information from LEAs. In addition, FT investigation is carried out on the basis of a quarterly strategic analysis.

In practice, the Office for Combatting Terrorism in the SSU, with specialist expertise in FT is the main player in the identification and investigation of FT and other terrorism-related offences. The SSU prioritises all FT case referrals received from the FIU».

«The FIU has established effective communication channels with FIs and DNFBPs, and addresses FT risks in the sector in the context of the training provided to REs».

Immediate Outcome 11 (PF financial sanctions):

«The communication mechanisms in place in the FT-related TFS context, such as dissemination and guidance from the FIU, are in place in this context as well. The FIU regularly relays relevant information on PF risks (including FATF public statements) to the REs through its official website. In 2016-2017, the FIU’s Training Center conducted various awareness-raising events for REs, which covered PF issues».